It’s no secret that having a poor credit rating can adversely affect your finances, especially if you’re looking to borrow money or buy a property. If you haven’t checked your credit rating in a while and it’s lower than expected, you may be left wondering what has caused this and how you can avoid it happening in future. Some of the ways in which your credit rating can be affected may seem obvious, but there are also other factors you may not be aware can have a negative as well as positive impact.
Multiple Loan Applications
When looking for your next loan, you may be tempted to apply for multiple different products to increase your chances of being approved. However, this can have the opposite effect and could indicate to lenders that you are desperate for funds, reducing your score overall. Each time you complete an application, a hard search will be performed on your credit file to check your eligibility. This will stay on your credit file for two years whether you are approved or declined which other lenders can see. If you have poor credit already, there are specialist payday loans direct lenders that can help show you who you are most eligible for before applying, avoiding the need for multiple applications. Applying for a lot of credit in a short time period will indicate to a lender you may be too reliant on credit and cause you to have further declined decisions.
Not Maintaining Repayments
If you have existing credit agreements, it’s essential to maintain them and ensure any repayments are done so on time. Not only will this avoid any late payment fees, but it will also avoid your credit score from dropping. Even if you have gotten into the habit of making repayments a day or two late each month, this will still show on your credit file as being late. You should ensure that you have enough funds in your bank account before your payment due dates to avoid this happening, and if for any reason you know you cannot pay on time, you should contact the lender as soon as possible in advance.
Spending Too Much Credit
Once you have agreements in place with a credit limit, such as on an overdraft or credit card, you should be careful about how much of it you use. If, for example, you have a £5,000 limit on a credit card, using the majority of this limit will reduce your credit utilization. This is what credit reference agencies assess when providing your score, with a low credit utilization having a more positive effect. Using up most of your available credit will indicate a reliance on borrowing, especially if you then apply for further borrowing. As a guideline, having under 30% credit utilization is advisable.
Viewing your full credit report will usually indicate areas you would need to improve on, highlighting if you have too many missed or late payments, if your credit utilization is too high or you have multiple creditors outstanding. The good news is, no matter how bad your credit rating, it can be improved upon if you know what has caused the issue. Avoid unnecessarily impacting your credit rating and focus on maintaining any commitments on time.
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